Review of forecast against actual
business developments

In the Annual Report for 2014, we gave forecasts of the key financial performance indicators for the Merck Group and our business sectors for 2015. At the time of the forecast, the acquisition of Sigma-Aldrich was still pending due to outstanding antitrust clearances. We therefore provided a separate forecast in the event of the successful acquisition of Sigma-Aldrich, in which we expected the first-time consolidation of Sigma-Aldrich in mid-2015. The following report reviews the forecast against the actual business developments, including the first-time consolidation of Sigma-Aldrich on November 18, 2015.

Net sales

We predicted slight organic sales growth for the Merck Group in 2015, supplemented by a slight portfolio effect and a moderately positive exchange rate effect. All business sectors contributed significantly to the moderate 2.6% organic increase in the net sales of the Merck Group, thus exceeding the forecast. In addition, despite the delay in the acquisition of Sigma-Aldrich owing to antitrust reviews, we recorded a solid portfolio effect of 4.3%, in part due to the good performance of AZ Electronic Materials, a company we acquired in 2014. The strengthening of the U.S. dollar and major Asian currencies against the euro in 2015 contributed significantly to the strong positive currency effect of 6.2% on net sales.

Our Healthcare business sector generated slight organic sales growth of 1.6% in 2015, thus slightly exceeding the guidance provided in the Annual Report for 2014. In addition to the performance of Rebif^® in North America, which exceeded our expectations, this was due to the organic increase in sales of our products to treat diabetes (Glucophage^®), cardiovascular diseases (Concor^®), infertility (Gonal-f^®), and thyroid disorders (Euthyrox^®), as well as Neurobion^®, a brand marketed by the Consumer Health business.

For the Life Science business sector, we forecast a moderate organic increase in sales in the Annual Report for 2014. Posting strong organic sales growth of 6.5% in 2015, the Life Science business sector exceeded this forecast. Process Solutions made a significant contribution to this development with organic sales growth of 11.6%. In addition, the Life Science business sector saw a portfolio effect of 10.2% due to the acquisition of Sigma-Aldrich.

For the Performance Materials business sector, we predicted slight organic sales growth, supplemented by a strong portfolio effect. At 0.6%, the actual organic growth was only slightly below this forecast. Special mention should be made of the dynamic development of the OLED materials business, as well as the energy-saving UB-FFS technology from the Display Materials business unit. However, the mature LC technology TN-TFT suffered from an accelerated decline in volumes. The portfolio effect of the revenues from acquired businesses was 10.4%.

EBITDA pre exceptionals

In 2015, excluding the acquisition of Sigma-Aldrich, EBITDA pre exceptionals of the Merck Group saw a solid increase over the previous year, thus exceeding the forecast we gave in the Annual Report for 2014. In addition, apart from operating performance, positive foreign exchange effects of the U.S. dollar and major Asian currencies contributed to this development. Including Sigma-Aldrich, we generated a strong EBITDA pre exceptionals increase of 7.1% to € 3,630 million for the Merck Group in 2015.

For the Healthcare business sector, we predicted a slight decline in EBITDA pre exceptionals in the Annual Report for 2014. The good development of organic sales helped us to exceed this forecast, achieving the year-earlier level with EBITDA pre exceptionals of € 2,002 million.

In the Annual Report for 2014, we predicted a moderate increase for the Life Science business sector. Excluding Sigma-Aldrich, EBITDA pre exceptionals of the Life Science business sector saw a low double-digit increase, thus exceeding our guidance provided in the Annual Report for 2014. In addition to positive exchange rate effects, this development was also attributable to a favorable product mix.

We forecast a low double-digit increase in EBITDA pre exceptionals for the Performance Materials business sector in 2015. With medium double-digit growth (excluding Sigma-Aldrich), we significantly exceeded this forecast. Both good operating business performance and positive exchange rate effects were responsible for this development.

For EBITDA pre exceptionals of Corporate and Other, we expected a low double-digit percentage decline. Owing to expenses for currency hedging transactions as a result of the global exchange rate movements against the euro and the intensification of future-oriented Group initiatives (e.g. new branding), the Corporate and Other expense of EBITDA pre exceptionals more than doubled overall. Consequently, we did not meet our forecast.

Business free cash flow

For 2015, we had forecast a slight improvement in business free cash flow of the Merck Group. Excluding the contribution from Sigma-Aldrich, we can confirm this forecast. While business free cash flows of the Life Science and Performance Materials business sectors showed a sharp increase over 2014, both the Healthcare business sector and Corporate and Other saw a decline. The decrease in Healthcare is attributable to higher investments and the high amount of capital tied up in receivables. In Corporate and Other, expenses for the ONE Global Headquarters and strategic Group initiatives in particular led to a decrease in business free cash flow. Including Sigma-Aldrich, our Group business free cash flow increased sharply by 6.2%.

Review of forecast against actual business developments in 2015